Walking into a bank or an investor’s office can be an intimidating experience. Your future is on the line and you have a million worries on your mind. But there’s really only one thing that the lender wants to know: Can you repay the loan?
If you’ve done your homework, you can answer that question with confidence. Here are some of the things that lenders agree you should have with you when you approach them for a business loan.
- A Business Plan. The key item your lenders and investors will look at because it spells out your business. If you’ve prepared it carefully, it will include many of the items below. (See: Parts of a Business Plan).
- A Prospectus. A written projection of what you expect your future sales and cash flow will be over a range of time – three months, six months, one year, two years, etc. This will help demonstrate your ability to repay the loan.
- Personal Finances. Copies of savings and checking accounts, and proof of past loans satisfied. Also, your tax records for the past two or three years. Include the same for any partners in your business.
- Good Credit Report. The lender or investor will get a copy of your credit report, for sure, but you should know what that record is beforehand. If you have credit problems, clear them up. If you have a low credit score, take measures to help improve it. (See: Credit Reports).
- Legal Documents. Copies of any of the following (or similar items) that apply to you and your business: Business licenses, permits and registrations; articles of incorporation, contracts with any third parties, such as customers, vendors, or suppliers; leases for commercial property and/or equipment.
- Collateral. Proof of ownership for any collateral you are using to back your loan, such as stocks, savings, or your equity in other property, and proof of any liens that might be placed against that equity.
- References. Letters of reference from previous lenders or creditors, and possibly from suppliers/vendors, with whom you might have done business with in the past.
Visit Business.usa.gov to get a general information about applying for federally funded business loans.
It’s Not All Paper
When it comes to borrowing money for your business, talk is not cheap. In assessing your ability to repay a loan, the lender will ask you some serious questions. Be ready with solid answers.
- A Good Story. Explain why you are confident your business will succeed, and why it’s a safe bet for the lender.
- What You Need. Have a solid figure in mind, not an estimate or a range. Know the terms you’d like for repaying the loan. You’ll surely have to work with the lender on this, but at least you’ll have a starting point.
- Why You Need It. Be ready to explain exactly what the borrowed funds will be used for: Working capital? To purchase property, equipment or materials? Advertising and marketing?
Remember, banks do want to lend money; that’s how they make their profits. They just don’t want to lend money to people who won’t, or won’t be able to, pay it back. So don’t give up. If you get turned down, ask why, and ask if you can correct those problems and reapply. If not, apply the “lessons learned” and move on to another lender.